April 17 (Bloomberg) -- Argentine President Cristina
Fernandez de Kirchner seized control of YPF SA, the nation’s
largest crude producer, ousting Spanish owner Repsol YPF SA
after a dispute over slumping oil output and investments.

Argentina took over management of YPF with immediate
effect, replacing Chief Executive Officer Sebastian Eskenazi
with Planning Minister Julio De Vido, Fernandez said yesterday
in a speech in Buenos Aires. The government will also send a
bill to Congress to take a 51 percent stake in YPF, she said.

The takeover follows more than two months of increasing
government pressure on YPF after fuel imports doubled to $9.4
billion last year. The country sought to block YPF dividends and
backed provincial governments when they revoked 15 oil field
licenses. Fernandez also seized a $24 billion pension fund and
airline Aerolineas Argentinas SA since taking office in 2007.

“They are going to be closing the country as an investment
destination,” Anish Kapadia, an analyst at Tudor Pickering Holt
& Co. in London, said yesterday in a telephone interview from
the city. “What’s surprising is that they are expropriating
assets rather than going through a fair market means to get hold
of a stake in the company. That sets a terrible precedent.”

Argentina, which defaulted on a record $95 billion of debt
in 2001, needs to regain control of Buenos Aires-based YPF to
avoid becoming “an unviable country,” after oil production
slumped, Fernandez said to the accompaniment of cheers from
supporters at the presidential palace. Compensation for the
seizure will be determined by the National Appraisal Tribunal,
Fernandez said, without giving more details.

Shale-Oil Reserves

Argentina will manage YPF “professionally,” Fernandez
said, adding that the country is one of the few that doesn’t
control its own oil. Deputy Economy Minister Axel Kicillof will
help De Vido to run the company, according to Fernandez.

The stake in YPF gives the government control of
Argentina’s shale oil reserves. YPF said in February that an
independent survey showed the Vaca Muerta formation in southern
Argentina holds at least 23 billion barrels of oil, of which at
least 13 billion barrels belong to YPF.

Argentina is expropriating YPF for the “public good,” a
government official said in yesterday’s speech.

‘Hostile Decision’

YPF American depositary receipts tumbled 11 percent to
$19.50 before being halted yesterday in New York. Earlier, they
plunged as much as 21 percent to $17.41.

Yields on YPF’s dollar bonds due in 2028 fell 16 basis
points to 9.94 percent. The bond’s prospectus says that a
nationalization of the company is considered a default event in
which bondholders may request expedited repayment.

The takeover was announced after Spain’s markets closed
yesterday. Repsol gained 0.06 percent to 17.48 euros in Madrid.

The decision is “a hostile decision against Repsol and
therefore against Spain and the Spanish government and the
government will act in consequence,” Spanish Industry Minister
Jose Manuel Soria told reporters yesterday in Madrid.

“The Spanish government is working on measures that will
be announced in the coming days,” he said. “They will be clear
and decisive measures.”

Retaliation by the European Union would risk Argentina
exports to its single-biggest trading partner outside of Latin
America. Argentina sold about $14.3 billion in goods to the EU
last year, up 28 percent from 2010, the national statistics
agency said. Spain was the biggest destination in the EU,
accounting for 3 percent of Argentina’s sales abroad.

Paris Club Debt

Fernandez has also said she wants to resolve about $9
billion in defaulted debt with the Paris Club group of creditor
nations. Negotiations with the group will be more complicated
after the YPF decision, Claudio Loser, a former head of Western
Hemisphere Affairs at the International Monetary Fund, said
yesterday in a telephone interview from Miami.

Calls to YPF were referred to De Vido’s spokesman.

YPF’s output accounted for about 34 percent of the nation’s
production in 2011, according to energy secretariat data. The
company is also the country’s largest fuel retailer and refiner,
with about 50 percent of refining capacity.

Energy demand grew over the past decade as Argentina
recovered from a financial crisis. South America’s second-largest economy expanded an average 7.8 percent since 2003,
including 8.9 percent growth last year.

As economic growth spurred demand for fuel, oil output
declined. Since 1999, the year Repsol acquired its controlling
interest in YPF, production dropped 32 percent to 33.2 million
cubic meters last year, according to data compiled by the Buenos
Aires-based Argentine Oil and Gas Institute.

‘International Isolation’

“This expropriation is madness and its only result will be
international isolation,” opposition lawmaker Julian Obliglio
said in an e-mailed statement. “The President has broken a
history of tradition, respect and solidarity that link us to
Spain.”

Argentina sold most of YPF, which had been owned by the
state, to private investors in the early 1990s. The government
retained a 0.2 percent stake and a so-called golden-share that
entitles it to make certain decisions, including the veto of
takeovers.

After acquiring control of YPF, Repsol sold a 15 percent to
Argentina’s Eskenazi family in 2008 and a further 10 percent
last year. Until today’s announcement, Repsol owned 57.4 percent
of YPF.

Eskenazi Stake

The Eskenazis received two bank loans and two loans from
Repsol to finance the acquisitions. The last installment of the
first bank loan is due in May. They must start repaying the
first Repsol loan next year.

Under the terms of the Eskenazi acquisitions, YPF paid
dividends of 90 percent of net income in two semi-annual
payments. The government representative on the board voted
against the dividends twice in 2011 and again this year.

The government requested at a March 8 board meeting that,
instead of paying dividends, the money should be invested in
production and exploration.

As governor of the southern oil-producing province of Santa
Cruz, Fernandez’s late husband and predecessor Nestor Kirchner
sought to acquire 5 percent of YPF’s shares on the New York
Stock Exchange in the 1990s in an attempt to gain a seat for the
province on the board, Fernandez said in a March 1 speech to
Congress.

Kirchner had to stop buying the shares once Repsol took
over YPF, she said.